By Julie Steinberg
Ally Financial Inc.'s chief executive Thursday reacted angrily
to General Motors Co.'s decision to squeeze the lender out of a
lucrative leasing business and vowed to overcome getting jilted by
the firm's former parent.
Ally, which derives billions of dollars in revenue from the
car-leasing business, is being pushed out of a large chunk of that
business after GM announced that it will exclusively use its
lending arm for some of its biggest brands such as GMC and
Buick.
Ally executives spent much of Thursday explaining to analysts
and investors how they will deal with being cut out of the
loop--and expressing frustration that the business is now
off-limits.
"What pisses us off is when we don't get the chance to compete"
on a level-playing field for the business, said Chief Executive
Michael Carpenter, on a conference call with analysts.
"While we were not surprised by the idea of GM" expanding its
in-house financing arm, Mr. Carpenter said, "we were surprised that
they would exclude any competition in the lease space."
Ally, he added, "has done such a great job for them" in the
past.
A GM spokesman said the company's move "is a natural evolution
of their support for GM's business in the U.S. and is consistent
with our strategy to provide customers with transparent,
competitive financing products."
Leasing deals make up a substantial portion of U.S. auto
financing, and auto makers often subsidize the leases by giving
lenders--including nonaffiliated banks like Ally--financial
support. Detroit-based Ally, formerly known as GMAC and spun off
from GM in 2006, is among the largest U.S. auto lenders.
But GM said earlier this month it would rely on its GM Financial
lending arm as the exclusive provider of subsidized leases at GMC
and Buick dealers, with plans to eventually extend the arrangement
to Chevrolet and Cadillac.
Ally's originations for leases of three brands of GM cars
totaled $5.2 billion in 2014, or 13% of its total originations.
Ally, which on Thursday reported a 70% rise in profit for the
fourth quarter, said it would find ways to recover the lost revenue
and isn't revising its forecasts. The firm's shares dropped 2.2%,
to $19.58.
GM's move marks a fresh challenge for Ally, which has been
trying to transform its business and move beyond the adversity of
recent years.
In the wake of the financial crisis, the firm received three
bailouts totaling $17.2 billion. The U.S. Treasury sold its
remaining stake in Ally last month, completing a process that saw
the firm deliver mostly profitable quarters since 2009.
In its most recent quarter, Ally's core auto-lending business,
which has been supported by strong auto demand in the recovering
U.S. economy, posted pretax income of $396 million, up 45% from a
year earlier. Consumer auto-loan originations rose 10% to $9
billion.
Mr. Carpenter said that while he expects leasing to shrink as a
percentage of the overall business, he also expects that to free up
opportunities in other parts of the business.
Ally said that it will still target the high-$30 billion range
for auto originations on a yearly basis. Ally has in the past had a
tight relationship with Fiat Chrysler Automobiles.
In an interview, Mr. Carpenter said Ally will expand
relationships with other dealers as well as other auto makers.
"It's not real hard to believe that we can replace that [lost]
business with other business," he said.
Separately, Ally executives said the firm will contemplate
assets outside of the automobile industry now that it no longer
accepts money from the government. The firm plans to expand in
jumbo mortgages, for example. "Now that we are no longer a TARP
institution, we have a lot more freedom to...play a little
offense," said Chief Financial Officer Christopher Halmy.
During the fourth quarter, Ally purchased $750 million of
"jumbo" mortgages--loans that exceed $417,000 in most places and
$625,500 in high-price areas--as part of an investment strategy,
Mr. Halmy said, adding that high-quality jumbo mortgages is a
profitable business with a good return on equity.
Ally's mortgage portfolio totaled $7.3 billion at the end of the
most recent quarter, down from $8 billion a year earlier. During
the quarter, the firm moved about $600 million in mortgages out of
the portfolio and will consider selling them this year.
A spokeswoman said the firm won't originate or service the jumbo
loans it just acquired. "We are not looking to re-create the
mortgage business that once existed," she said.
Since its third bailout in late 2009, Ally shed the troubled
subprime-mortgage business that was the main source of its
financial problems.
Overall, Ally posted earnings of $177 million, up from $104
million a year earlier. On a per-share basis, earnings were 23
cents, compared with a loss of 78 cents a year earlier. Excluding
certain items, earnings were 40 cents a share, the same as what
analysts had expected, according to Thomson Reuters.
John Stoll and Michael Calia contributed to this article.
Write to Michael Calia at michael.calia@wsj.com
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